How to Multiply Asias Gains by 230%

"...Whatever you think investing should taste of, it no longer just comes
in vanilla..."

DID YOU KNOW...? Private investors like you can make 230% of emerging
Asia's super-soar-away gains between now and 2014.

You're only tied in for three years. An early exit will return 130% of your
initial investment.

And yes - it really does sound just too good to be true.

"Citigroup said these products should be for sophisticated investors only.
But the municipalities were definitely not sophisticated investors..."

So says Eystein Kleven of the Financial Supervisory Authority in Norway, speaking
this week to The Guardian newspaper. He's investigating the collapse
of public funds in Narvik, a small town of 18,000 people some 140 miles north
of the Arctic Circle.

"Terra Securities misled them," Kleven goes on. The municipality lost $35
million on high-risk US mortgage-backed investments. Seven other small Norwegian
towns were also hit, apparently.

Why? Terra got busy selling Citigroup-issued derivatives to profit-hungry
public investors. But it failed to explain that if their market price fell
below 55% of face value, the products would be forcibly redeemed, leaving small
towns like Narvik with an instant loss of 45 cents in the dollar or more.

Which is just what happened last summer, of course. Yet Narvik opted to pump
fresh funds into these products, hoping they'd come back in due course. So
now the same dumb investment has made the town's fund managers look stupid
twice.

"Terra Securities did not disclose this mechanism to the municipalities," says
Kleven in mitigation. "We are not sure whether the broker understood the mechanism
himself." But so what? A lack of understanding should never get in the way
of making an investment. Or so you'd guess from the professional market.

Just 42% of fund managers reckon they can quantify their true exposure
to complex investments.

Interviewing more than 330 professionals in 57 countries worldwide - and with
one-third of respondents based in the United States - Beyond the Credit
Crisis also found that the blow-up in credit and debt derivatives has directly
dented returns at 60% of investment funds. And as a result, a huge 70% of institutional
investors now want to cut their exposure to derivatives and "other complex
financial products".

Yet of those managers running $10bn-plus, three-in-four say their use of such
instruments is growing regardless!

Of course, "Derivatives don't kill people; people kill people," as Frank Partnoy
quotes a fellow Morgan Stanley salesman from the early '90s in his classic
book F.I.A.S.C.O. Yet even now, more than 15 years after Orange County
blew up, people wielding derivatives continue to "go postal" every so often.

Just take a look at the carnage amongst under-informed, over-reaching investment
funds.

"Staff skill sets have struggled to keep up with the growing sophistication
of the industry," says Tom Brown, head of KPMG's investment management division
in Europe. "These firms cannot afford to continue flying blind." Flying blind
worked up to summer '07; it's also much cheaper than training or hiring qualified
staff. Quicker, too. Time is money when structured products with hidden clauses
are waiting to get triggered.

But "if the fund management industry is to retain the trust of investors," reckons
the KPMG-Economist survey, "it would seem imperative for it to both
develop the necessary skills and then offer these skills to investors."

If only! Investors right down to the retail level are going need all the same "necessary
skills" they can get. Because trigger-happy derivatives are heading your way,
and they've got a big fat marketing budget - plus the entire financial media
- queued up right behind them.

"Groups are continuing to flood the market with structured products as investors
seek safety from volatile markets," reports IFAonline here in the UK,
a website aimed at financial advisors. Originally offering zero downside -
so-called capital protection - structured products on stocks, bonds and property
now come with such juicy options as:

"10 times the upside in the index with a cap at 70%..."

"positive returns even if the index falls by 35%..."

"100% of any growth between 65% of the initial reading and the closing
level..."

"one-for-one downside with no guarantees or protection but an uncapped
geared return of 170% of growth..."

"the greater of 0.24 times initial capital or 0.75 times the growth of
the index..."

Got that? Whatever you used to think investing should taste like, it no longer
needs to just come in vanilla. Starbucks' menu of frappuccino flavorings has
got nothing on Wall Street, La Defense and the City of London.

Which brings us back to multiplying Asia's stock market gains by 230%, courtesy
of Morgan Stanley UK. There's no fee for investing in the bank's new Asia ex-Japan
Protected Growth Plan 5. (We guess here at BullionVault that
means there are already four in issue.) And with the exception of a transfer
charge of £100 plus VAT (approx. $230), "all other charges are taken
into account in setting the terms offered," says the brochure.

Nor could you ask for better timing. The Hang Seng in Hong Kong - one half
of Morgan Stanley's basket in this plan (which then only runs to Taiwan in
offering "Asia ex-Japan") - just suffered its worst month since, umm...well,
since February in fact. Losing 10% of its value during the worst June in 19
years, the Hang Seng just put in its worst half-year since 2001.

That will go towards cutting your purchase price by one-fifth from New Year's
'08. And seeing how the Hang Seng has still doubled inside five years, it's
only heading one way long term, you might guess.

But if that were the case, why on earth would Morgan Stanley want to offer
you 230% of the next six years' of growth?

"The Early Exit Basket Level is the official closing level of the Basket on
1st September 2011," explains the brochure. If this level is 30% or more above
the initial starting level of Sept. '08, then the Early Exit will be triggered
and "you will be able to elect to receive an amount equal to 130% of your Initial
Investment."

Bully for you! Thirty per cent up in three years, regardless of any extra
gains above that level which Asia stocks might deliver. Nor did you get any
capital protection in between. And if you now neglect to quit the scheme, then
30% is all you'll get after the following three years as well.

Your growth is protected, in short, but not your capital and certainly not
your upside exposure if the Early Exit is triggered. So the last thing investors
in Morgan Stanley's new Asia ex-Japan Protected Growth Plan 5 actually want
is a quick bounce in Asian stocks. To get a shot at making 230% of Asia's gains
to 2014 instead, they'll actually need sub-30% gains between now and 2011.
Which might be just what they get, of course. We have nothing against Morgan
Stanley's new offer, nor the terms on which it's made. But we are getting a
head-ache trying to figure out why anyone might buy this structured product.

Like all structured investment offers, it's clearly built from a fistful of
complex derivative contracts which Morgan Stanley has bought. (At least,
we hope Morgans have laid off their risk with derivatives contracts...)
Squeezing the new retail market for structured products ever tighter, Morgans
have even raised that six-year gearing from the 200% recently offered in ex-Asia
Growth Plan 4.

More gearing for you equals more risk for somebody, somewhere...and the brochure
from Morgan Stanley UK is bold enough to re-state the facts more than once.

"Your money will be invested in securities issued by financial institutions
with a credit rating, at the time of publication of this brochure, of A+ or
better by Standard & Poor's...In the event of these financial institutions
going into liquidation or failing to comply with the terms of the securities,
you may not receive the anticipated returns on your investment and you may
lose all or part of the money you originally invested.

"The Plan is not a guaranteed investment," in short, which is just as it should
be. Nothing is certain, least of all in investment. But you'd do well to acknowledge
your counter-party and trigger risks next time you find 230% gearing attractive.
Either that, or put a little of your wealth into something simple, stupid and
brutally blunt.

Buying Gold doesn't offer to pay
three times Fed funds minus your sister-in-law's birthday divided by the number
you first thought of. But Gold owned
outright is at least sure to sit free of counterparty and trigger risk. And
that's got to be worth buying as banks fight to bamboozle investors with a
new raft of complex derivatives...even as the last derivatives bubble continues
to blow up.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.